Mapping EU action on Gender Equality: from the Treaty of Rome to Quotas

Harvard Club Belgium/Brussels

8 October 2012

Ladies and gentlemen,

To talk about women on boards is very much en vogue these days. Discussions around that theme often turn out to become passionate or ideological. That is why it might be interesting to look back and trace the origins of today’s debates. Allow me therefore a little excursion into history.

Since its early days, the European Union has had the competence and the authority to act on gender equality. The Treaty of Rome in 1957 already included a provision banning discrimination on grounds of sex. The background to this Treaty provision was mostly economic: the Member States (in particular France) wanted to eliminate possible distortions in competition between undertakings established in different Member States. France had adopted provisions on equal pay for men and women much earlier and it feared that cheap female labour in other Member States (notably Germany) would put French undertakings and the economy at a disadvantage.

In 1976, the European Court of Justice ruled that Article 119 had both an economic and social aim. As such, it was the European Union that contributed to social progress and the improvement of living and working conditions of women across the European continent. Economic and social objectives are therefore the two sides of the same coin in gender equality.

I still remember the important Defrenne case (1971) in front of the European Court of Justice: Ms. Defrenne (a flight attendant for the Belgian national carrier SABENA) complained about unequal pay for identical work performed by male and female crew-members. In its judgments the Court clarified the scope of European gender equality law. The Court confirmed that the Treaty principle of equal pay for equal work was directly applicable and can be relied on in national courts. As a result, the Defrenne judgments paved the way for modern European gender equality law. It has been followed by an impressive amount of case law.

A long time has passed since the Defrenne cases. SABENA no longer exists, but Europe has made remarkable progress towards equality between men and women. We have combined our resources and instruments (legal, political and financial) to bring about change.

As the European Treaties empower us to adopt measures to ensure equal opportunities and equal treatment in matters of employment and occupation, the Commission has over the years taken a number of legislative steps on gender equality in employment. For instance, we inscribed the principle of equal pay in European law, we established the principle that women and men must have the same promotion and training opportunities and we adopted legal instruments covering gender equality in social security and for self-employed people. European rules on maternity leave and parental leave exist since the 1990s.

Today, more women than men graduate from universities: 60% of university graduates are women. Today, more women work in Europe than ever before: on average women account for close to 60% of the workforce across the EU. Today, Europe is making more use of its talent and better use of its skills. It is now clear that women and men cannot be discriminated against on grounds of gender. Be it in employment and occupation, vocational training, social security or access to goods and services: women and men have to be treated equally. This is the legal situation.

The road to effective equality remains, however, long and full of obstacles. And in one area, the reality is particularly disappointing – gender balance in economic decision-making. In particular, gender diversity in the boardrooms of European companies is showing no signs of improvement. Across the EU, company boards are currently dominated by one gender: 86.5% of board members are men while women represent just 13.5%. 97.5% of the chairpersons are men and only 2.5% are women. If you compare this to the 60% of female university graduates, you understand that something is profoundly wrong.

Women and men should have the same opportunities to take leadership positions. This principle was clearly set out in the European Commission's 2010 Strategy for Equality between women and men. And, in the Commission's Work Programme for 2012, we announced a legal instrument to improve gender balance on company boards by the end of 2012.

Why did we need to take this step?

Because despite an intense public debate, good intentions and many promises, the situation has not changed significantly in recent years. I presented the facts and figures in a report in early March: only 13.7% of positions in the highest decision-making bodies of the major listed companies in Europe were held by women at the beginning of this year. The progress over the years has been very slow (on average: 0.6 percentage points per year since 2003) and very diverse across Member States. Tangible progress is the exception and not the rule. Progress is only visible in countries where quota laws were introduced. This is for example the case in France: after adopting a legal quota in January 2011, France has seen the number of women on boards increase by 10 percentage points, jumping from 12 to 22 % in the space of a year.

In other Member States (8 Member States have even not taken the 5% hurdle) progress has been dramatically slow and this despite the fact that there are many good reasons for a stronger female presence in the decision-making bodies of companies. Let me name a few:

First of all, there is a clear business case. Numerous studies - by Crédit Suisse, McKinsey, Deutsche Bank, Ernst and Young and others – show that companies with more women in top management enjoy better governance and financial performance. The McKinsey study has, for instance, shown that companies with women on their boards outperform their men only rivals with a 42% higher return in sales, 66% higher return on invested capital and 53% higher return on equity. Or take the Crédit Suisse study which shows that, over the past six years, companies with at least one female board member significantly outperformed those with no women on the board in terms of share price performance. According to the Boston Consulting Group, 70% of household purchasing decisions are made by women. These are not just about supermarket items or new shoes. Women also decide about buying houses and cars. So, if more women than men are coming out of university, if a substantial percentage of the staff at a company is female, if women drive 70% of the buying decisions, what possible business rationale is there for keeping women out of the boardroom?

For me all these studies and facts make it crystal clear: women mean business and profit.

But there is also a clear macroeconomic argument for more gender diversity on boards. The glass ceiling that keeps women out of decision-making roles is likely to discourage women from using their full professional potential. And poor career prospects discourage women from continuing in paid employment. The reduced labour supply in turn hampers economic growth. This is a price that we cannot afford to pay: ageing European societies have to make full use of their talent if they are to successfully compete in a globalised world.

We have to bring more women into leadership positions fast! We have no time to lose. During economically challenging times, exacerbated by an ageing population and skills shortages, we should be making use of every talent available.

The growth in female leaders being very unequal across Member States, we are also confronted with a possible distortion of our internal market.

There are practical complications for listed companies operating cross borders due to divergent legal requirements or corporate governance rules. The lack of transparency of the selection procedures for board positions does not help either.

Yes, we are used to diversity in Europe. But this one is not beneficial; it is a barrier to a well-functioning Single Market.

On the one hand, we have countries where there is a complete standstill.

1. In two thirds of the Member States nothing has been done and no progress has been made in recent years.

2. On the other hand, we have Member States where a lively public debate has resulted in self-regulatory efforts. For example, in the UK following the Lord Davies report, the rate of women on corporate boards jumped from 13 to 16%. The same happened in Germany where politicians and journalists started a heated debate that led to increased efforts by DAX-30 companies. In Germany, the so-called Berlin Declaration, a cross-party initiative, called for a 30% quota and the Bundesrat agreed on binding quota legislation.

3. However, visible progress has been achieved only in the third group of countries, those which have introduced quota legislation. The lack of progress by means of self-regulation has prompted 11 European Union countries (Belgium, France, Italy, the Netherlands, Spain, Portugal, Denmark, Finland, Greece, Austria and Slovenia) as well as the European Economic Area Member State Norway to choose different legal solutions, including mandatory quotas, to strengthen gender equality on company boards. In the Netherlands, the percentage of women in decision-making rose from 15 to 19%, in France from 12 to 22%.

If we look at EU figures excluding France, the share of women on corporate boards did not increase by 3.5% but only by 1.1 percentage points between October 2010 and January 2012. That means that one Member State alone is responsible for almost half the improvement we have seen across the EU in 2011. To put it frankly: outside France, there has not been much progress at all.

Today, we face a fragmented set of rules and regulations, some are binding, some voluntary, and in some countries there are no targets at all. This is hardly the coherent, reliable legal framework businesses need - especially when they want to do business in the EU's Single Market.

This piecemeal approach creates practical problems for the internal market, as different company laws and sanctions for not complying with different quotas, could lead to complications, in particular for multinational companies. Legal uncertainty can have a deterrent effect on companies' cross-border investments and on the establishment of subsidiaries in other Member States.

And we must preserve a level-playing field in the internal market when it comes to competition. This is yet another reason for Commission rules in this area.

Of course, I hear voices against European action – saying that self-regulation works. Let me tell you: it does not!

In 1984 the Council of Ministers recommended1 that Member States ensure active participation by women in decision-making bodies. In 1996 the Council of Ministers recommended2 that Member States encourage the private sector to increase the presence of women at all levels of decision-making. Result: zero. In 2001, a voluntary code was signed in Germany. The analysis of the results in 2011 also showed no progress.

I have encouraged companies to self-regulate. In March 2011, I urged listed companies to sign a voluntary commitment called the "Women on boards pledge for Europe". When the year was over, only 24 companies had signed this pledge.The message for me rang crystal clear: self-regulation on its own has not and will not produce results.

We need to act at European level. And we need to act now. On the basis of a three months public consultation and a thorough economic analysis the Commission is considering an EU-level legal instrument to accelerate progress. The final decision on such an instrument will be taken by the College of Commissioners before the end of this year.

I also often hear the argument that there are not enough women qualified for board positions. I also hear that choosing a woman would mean giving priority to gender over merit. I disagree with both.

In March this year "the European Business Schools/Women on Board" initiative prepared a first list of more than 3,500 board-ready women to support my activities to break the glass ceiling. These women were selected according to strict criteria (top level studies, long management experience). They meet all the requirements to sit in the governing bodies of companies. Today there are already 8,000 top-level potential candidates on the list. These figures clearly demonstrate the abundance of female talent. All we have to do is to open the doors of the boardrooms to these highly qualified women.

The Business Schools Initiative is actually a very good example of the important role that Alumni networks can play in the process of getting more women into corporate boardrooms. Alumni networks are an important 'eco-system’, bringing together many constituencies throughout their careers, as part of the Biz School Network. At the same time corporations who support business schools are often donors of chairs, sponsor programmes, institutes, etc. Very often the CEO’s of these corporations sit on the Board of the Business School. They can avail themselves of the senior executive women talent in the wider eco-system of the school and its networks.

Ladies and Gentlemen,

At the moment, we are having internal discussions in the Commission to finalise our proposal for improving gender balance on company boards. I am not alone in this battle: all the European Commissioners with a relevant economic portfolio have joined me in this battle: Antonio Tajani (Commissioner for Industry and Entrepreneurship), Olli Rehn (Economic and Financial Affairs), Michel Barnier (Internal Market and Services) and Lazslo Andor (Employment, Social Affairs and Inclusion) will present this proposal with me: I am confident you will see the final result in the months to come. For those who say that an EU instrument would mean discrimination of better qualified men I say: do not fear. I can assure you that our proposal will observe the highest fundamental rights standards as set out in the EU Charter of Fundamental Rights. Qualification and merit will remain key criteria for a job on the board. If no equally qualified candidate from the underrepresented sex is available, a sort of 'flexibility clause' will solve the problem.All we are asking for is this: Women must be given the same opportunities as men to get their rightful place on boards. In times of economic difficulties, we cannot waste talent.